Buy To Let
BUY TO LET
Find the right mortgage for your Buy to Let property
Property can be a great way to generate additional income and build capital growth for the future, however, Buy to Let mortgages can be complex with the amount you can borrow being based on the likely rental income from the property instead of your earned annual income.
In recent years there have been various changes in legislation and the mortgage market that have affected Buy to Let ownership. These relate to things such as a properties energy rating, the number of properties owned and the legal status of ownership and it is more important than ever to use the services of a professional adviser before you make that decision.
Whether you’re an experienced landlord looking to buy further properties, remortgage existing ones or buying to invest for the first time, we can help you.
How does it work?
The buy to let market has evolved over the last few years with many new lenders entering the market again so expert advice could be valuable in finding the correct mortgage that is suitable to your needs. We have many exclusive mortgages that can only be found through a specialist broker like ourselves rather than on the high street and have a variety of criteria to suit your needs.
Whether buying or remortgaging, the first step really is to talk to us as there are so many permutations and even things like your current tax status will potentially affect the lenders that are available and the structure of the borrowing.
The Financial Conduct Authority does not regulate some Buy to Let Mortgages.
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What are my responsibilities as a landlord?Being a landlord means you are not only responsible for yourself anymore, you have a duty of care towards your tenants and need to ensure that the property is habitable. You’ll also have to make sure you have the relevant safety certificates and insurances in place to protect your tenants, yourself and your property.
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How much can I borrow?When it comes to getting a mortgage, most lenders will use an affordability calculator which takes into account the potential rental income against the amount of money you wish to borrow, although some may also have a minimum personal income requirement to cover any rental void periods. If the rent is not quite enough to meet the figure set out by the lender, there are a few options that we can look at. Some lenders will allow ‘top slicing’ which is where the applicant’s own personal income is taken into consideration to top up the required amount. A hidden industry tip is looking at a five-year Fixed-rate deal, which reduces the rent required, as the lender’s internal stress testing rates aren’t set as high as when they’re on a two-year deal. It just comes down to individual circumstances and looking at each individual lender.
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Are there any requirements to be a landlord?The majority of lenders will require you to own your own home before buying another property but it is lender specific with some lenders being happy with pretty much anyone, within reason. Some lenders have minimum age criteria such as requiring you to be twenty-one or even twenty-five.
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I’ve never been a landlord before, are there any additional costs to consider?If you are purchasing a property that is not your main residence, you may need to pay a surcharge on top of the standard Stamp Duty rate and you will also have to pay tax on the rental income you receive. You should also be prepared that there may be some weeks or months when the property is vacant, for example when you’re in between tenants. You will still be responsible for making the mortgage repayments, so it’s best to keep some money aside to cover this and we would always suggest a minimum of 3 months rent.
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What sort of deposit will I need?Ideally you want 25% or more but there are a range of lenders that will accept 20% and a couple that will even take 15%, but as with residential mortgages, the better rates typically become available with a higher deposit as there’s less risk to the lender.
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What repayment method should I use?This really comes down to individual goals and your investment strategy. If you want to maximise monthly cash flow then Interest-only may be the best option, as the repayments are much less due to the fact that the capital is not being repaid. If you want to take a long term view and are not overly concerned about earning an additional monthly income then a capital repayment option may be most suitable. This will give you the peace of mind of knowing that the mortgage will eventually be repaid and the property owned outright, with all the capital within the property being available.
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What will the Insurer want to know about me?Essentially insurers want to know about your general health and whether you have any pre-existing medical conditions which might be something you were born with, or a health condition you have developed. They need to know because if they’re going to pay out a significant sum if something happens, they want to understand the likelihood. If you have diabetes, for example, or high blood pressure or high cholesterol, which are all things that are common as you get older, it’s crucial to disclose that honestly and truthfully. We will explain why they’re asking so that you feel comfortable and the insurer will also want to know other details such as your age and your smoker status.
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How much will it cost?When you apply, the price is determined by the amount of cover you need. For example, a policy for £50,000 versus a policy for £500,000 will be vastly different in cost. The term that you take the policy over is important as well. If you took out cover for just five years, the premium would be lower than if you wanted the cover for 30 years as there is far less likelihood of you passing away in the next five years. You also need to think about your age when it ends. If you take a 15 year policy out at 30, it would end when you’re 45 years old which is still quite young. At 45 you’re going to have to go through all the questions again and by that time you might have a health issue or a condition which will put the premium up, or even mean you are declined for cover.
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How much should I budget for life insurance?This is all down to the individual, but it can be helpful to compare the cost with other things you pay for each month such as takeaways, for example, or your daily coffee. Some clients do worry and want to make sure that everything is fully protected. They’re extremely prudent, good at budgeting and spending wisely. Meanwhile, other clients are the opposite and don’t budget, spending every penny they earn every month. As an advisor we point out what the risks could be. Your mortgage might be £1,000 a month and it’s not too hard to recognise that you need insurance to protect it. If you’ve taken out a big mortgage, you can expect the insurance to be a bit more costly, whereas if you’ve just taken out a £50,000 mortgage the costs may not be as significant.
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How much Life insurance do I need?This really is very individual and to determine the appropriate level of coverage for your situation, you should work with a qualified financial advisor. Several factors influence the amount of cover you need, such as your income, debts, and dependents. You should consider how much your family would need to cover living expenses, debts, and future expenses.
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What types of Life insurance policies are available?You can choose from different types of life insurance policies, including: Term: This policy provides coverage for a specific period, such as 10 or 20 years and is often used to protect a debt such as a mortgage. The cover may be level, increasing or decreasing depending on its purpose and premiums are usually lower than other policies, but the coverage ends when the term expires. Whole of life: This policy provides coverage for the policyholder’s entire life as long as the premiums are paid. It can be used for things such as funeral costs or inheritance tax planning.
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How much does income protection insurance cost?The cost of income protection insurance can vary based on several factors such as the level of coverage, waiting period, age, health status, and occupation. Policies with higher coverage and shorter waiting periods tend to be more expensive than those with lower coverage and longer waiting periods. Other factors that may affect the cost include the insurer’s underwriting process, any exclusions or limitations and location. Some insurers may offer discounts for bundling multiple policies or being a non-smoker. It is essential to review the policy carefully to understand the costs involved, including any ongoing premiums, fees, and charges.
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How do I make a claim?As income protection is based on your current earnings and some insurers may want you to provide proof of your earnings at the onset of the policy. They may want to see a pay slip or a contract, which means it’s quicker when it comes to making a claim. Other insurance providers want to see the proof of income when you make a claim, so you have to provide proof at that point. You have to keep the insurer updated if your job changes, or if your benefits change and you don’t need the deferred period to be as long or as short. The category of your job is very important when it comes to income protection. If you’re doing a high risk job such as a scaffolder, your risks will be much different to an office-based worker who is sitting in front of a computer, therefore the premiums to protect that income are going to be very different. It may affect your payout if anything changes and you haven’t informed the insurer.
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How much cover can I get?An income protection policy is not designed to fully replace all of your income and typically insurers will provide cover for up to 65% of your annual income. Income protection is designed to pay essential living costs, rather than fully replace your lifestyle. Look at the maximum amount you could have, but bear in mind you don’t have to take that. You might only need £1,500 a month in order to ensure your mortgage/rent and essential outgoings are covered. A professional adviser will help you to look at how much you need every month to pay the mortgage, gas, electric and water bills, as well as food and council tax. You might have one partner that earns a lot more than the other partner, so think about which person needs the cover most and take advice, because it’s such a complex thing.
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Am I eligible for income protection if I am self-employed?Insurers generally offer income protection insurance to self-employed individuals who work more than 16 hours per week. Income protection can be crucial for self-employed individuals as they typically do not have access to sick leave or other benefits provided by an employer. However, eligibility and the coverage amount may vary between insurers, and self-employed individuals may need to provide additional documentation to demonstrate their income and financial situation. It is essential that we check with potential insurers to understand their specific requirements and any exclusions or limitations that may apply to self-employed individuals.
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Will income protection cover me if I lose my job?Income protection does not cover redundancy. It only covers you if you cannot work due to accident, sickness, illness or injury. If you want redundancy cover it can be arranged separately, but it is not a part of income protection.
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Who is critical illness cover for?Critical illness cover is often purchased by individuals who are the primary breadwinners or contribute significantly to their family's financial well-being. This insurance can help ensure that they and their loved ones are financially secure in case they are unable to work due to a critical illness. Anyone can purchase critical illness cover, as critical illnesses can strike at any age. However, it is more common among people who have a family history of specific critical illnesses or those who have concerns about their health. Business owners may also consider critical illness cover to protect their business interests. This insurance can help cover expenses related to key employees or partners who become critically ill, ensuring the business continues to operate smoothly. Some individuals take out critical illness cover to help cover mortgage payments if they are unable to work due to a critical illness. This ensures that their home is not at risk of being lost in such a situation.
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Will my critical illness policy cover me if I have a pre-existing medical condition?The coverage of pre-existing conditions in critical illness cover depends on the specific policy and the nature of the condition. It is crucial to disclose any pre-existing conditions when applying for critical illness cover in order to avoid a declined claim. The policy terms and conditions should also be carefully reviewed to understand the available coverage for pre-existing conditions.
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How much critical illness cover would I need?The appropriate level of coverage for your individual circumstances depends on factors such as your income, expenses and existing insurance cover. Working with a qualified financial advisor is important to determine this and then to guide you accordingly.
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What types of illnesses are typically covered by critical illness insurance?Most critical illness policies cover a range of serious illnesses such as cancer, heart attack, stroke, and organ failure, although the types of illnesses covered and the amount paid out can vary depending on the insurance policy.
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Can you combine life insurance and critical illness cover?Yes you can. If the insurance provider is going to cover you for critical illnesses, which has a higher chance of happening than death, then they will add the life insurance for a very small premium or sometimes include it without any additional cost. It is important to structure your plan correctly as some combined policies will pay a claim based on the first event happening i.e. Death OR Critical illness whereas others will pay out for both events i.e. once when being diagnosed with a qualifying illness and then again in the event of death.
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What should I do first?We would advise anyone thinking about re-mortgaging to contact us at least six months before the end of their current term ends to allow plenty of time to find a new deal and get their application approved. We would also check what your current lender is offering and if they are offering attractive rates we will let you know and will provide a full service and look after this again for you
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Is re-mortgaging the best option for me?If you’ve come to the end of the introductory rate of your mortgage, it’s likely that you’ll be moved automatically to your provider’s standard variable rate which in most cases is higher and therefore your monthly payments could rise. By re-mortgaging you could secure a better rate. You can also borrow extra funds at the time of the re-mortgage to conduct home improvements or help with your current finances. Alternatively, you might be on a great deal with your current provider, in which case it might not make sense to switch as you could be tied in with charges to come out early. We will let you know if this is the case and will provide a full service and look after this again for you.
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Will my remortgage payments be higher than my current payments?Your monthly mortgage repayment will depend on the current interest rates and what current offers are out there. There are a number of different mortgage deals on the market, so shopping around is always the best place to start. We are experts at what we do and will help you secure the best possible deal.
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What fees might I have to pay?There are usually some costs associated with a re-mortgage but the good news is that at Parx we will NOT charge you a broker fee. There may however be a lenders arrangement fee and maybe legal fees, however, many lenders now offer to pay the valuation and legal fees as part of the re-mortgage package. There could also be early exit fees and penalties for leaving your current provider and we can advise whether or not it would be better for you to pay these or wait until they end.
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How much could I borrow?Every lender is different and this will depend on your circumstances and the make-up of your income. Once you have spoken to us we will conduct an affordability calculation. Lenders generally offer around four to five times your annual income, but some may offer more and the amount you can borrow may also be affected by other factors such as the size of your deposit, the type of product you are looking for. We will help determine exactly how much you can borrow, affordably.
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Can I improve my credit rating?If your credit score isn’t too good there are a few quick wins. First check with your local council that you’re on the electoral roll – it’s a basic requirement for credit. Generally, your rating will improve if you avoid going overdrawn, you always pay bills on time and stay well within your credit card limits. It also helps if you can stay at the same address for a while.
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Do first time buyers pay stamp duty?Following the latest change to stamp duty first time buyers no longer need to pay stamp duty on properties up to £425,000. On properties costing £425,001 to £625,000, first time buyers are required to pay 5% on the portion above £425,00
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How can a Mortgage Broker help First Time Buyers?It can be really helpful for First Time Buyers to talk to a Mortgage Broker. As mortgage experts we’ll help you through every stage, from setting your property budget and checking your credit rating to comparing deals and applying for a mortgage. We’re here for all your questions so please see us as your First Time Buyer guides. Ask us about anything from stamp duty to legal fees and insurance cover.
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How much deposit do first time buyers need for a mortgage?Any property purchase will require a cash down-payment called a deposit. The average deposit is around 10%, but some mortgage lenders will accept 5%. If you reach 15% or 20%, you will get better interest rates and therefore lower monthly payments.
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How much could I borrow?Every lender is different and this will depend on your circumstances and the make-up of your income. Once you have spoken to us we will conduct an affordability calculation. Lenders generally offer around four to five times your annual income, but some may offer more and the amount you can borrow may also be affected by other factors such as the size of your deposit, the type of product you are looking for. We will help determine exactly how much you can borrow, affordably.
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Can I increase my loan amount when I port?Some lenders will allow you to increase your borrowing when you port your mortgage, although this will depend on your ability to meet their criteria, they will need to assess whether you can afford the higher monthly repayments. If this option is not available, they may wish you to take out an additional mortgage for the extra borrowing. This can result in you having two different mortgages with the same lender, each of which could have their own terms.
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What is Porting?Porting your mortgage is a process whereby you can retain your current mortgage deal, but apply it to your new property when you move home. Most modern mortgages are portable, but it’s worth bearing in mind that when you choose to port your mortgage, a new application will be carried out. It’s therefore important to consider your current financial circumstances, as applications to port your mortgage will be assessed similarly to your original application, so it’s possible for it to be declined.
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Does the value of your current or new home affect your options?Due to the higher house prices involved with upsizing, this option will always be more challenging to port. If your circumstances have improved financially or you have gained significant equity in your current home, it will be much easier to meet the affordability criteria. Remember that it’s possible that you will also undergo additional credit checks when porting, if you choose to borrow more. If it’s necessary to improve your score, it’s advisable to do this ahead of your application. If you have low, or particularly Negative Equity (owe more than its current value) lenders are unlikely to accept applications to port your mortgage to a similarly priced property or more expensive one. In some circumstances it may be possible to downsize to reduce, but the fees associated with a reduction of more than 10% of your loan should be considered.
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Will I have to pay stamp duty?You must pay Stamp Duty Land Tax (SDLT) if you move home and buy a property over a certain price in England and Northern Ireland. How much you pay depends on the value of the property and the best way to check how much you will need to pay is to go to the Government website to check https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro